FOREX-Euro recovers against dollar; yen supported as stocks slip

Reuters

* European stocks slip, supporting yen

* Euro attempts to extend Friday's rebound vs dollar

* Holiday in Japan saps currency markets

By Anirban Nag

LONDON, July 21 (Reuters) - The euro climbed against the dollar on Monday as subdued U.S. yields capped the greenback, while the yen was supported by safe-haven inflows.

Volumes, though were light due to a holiday in Japan. Germany's stock index dropped 1 percent in early European trade to a two-month low, helping the yen, which is often sought during times of financial market stress and uncertainty over growth.

The euro eased 0.1 percent against the yen to 136.92 yen , not far from a five-month low of 136.66 yen hit late last week. However, it rose against the dollar to $1.3530 , extending Friday's bounce from a five-month low of $1.3491.

Support is seen at $1.3460/80, an area that has provided a floor on several occasions in the past 10 months or so.

The dollar was also slightly lower at 101.25 yen, with dollar bulls increasingly frustrated by U.S. yields , which were anchored near recent lows.

"Growth in the U.S. is soft and rate hikes are further away," said Patrick Bennett, currency strategist at CIBC World Markets. "So the recent ranges that have held in the euro/dollar should be respected."

The downing of a Malaysian airliner in eastern Ukraine last week and fighting in Gaza continued to dominate the headlines, with investors keeping a wary eye. But traders and analysts said these events were not leading to panic, for now.

"There is not a great deal of first-tier data either and investors have one eye on geopolitical events, all of that is a recipe for generally lacklustre trading," Mitul Kotecha, head of FX strategy at Barclays in Singapore.

He said he was still generally bearish on the euro.

"Overall, we still believe the euro is going to face more downside pressure. The chances are we're going to see more aggressive action from the ECB in coming months," he said.

"We prefer selling the euro versus the yen and sterling."

The euro slipped again against the Norwegian crown , to 8.3790 crowns, but not as sharply as on Friday when it was hit more heavily by concerns about Europe's energy supply, as tensions between Russia and the West over Ukraine rose.

Analysts said worries over the European Union's relations with Russia were outweighing the prospect of another cut in Norwegian interest rates next year.

(Additional reporting by Ian Chua in Sydney; Editing by Susan Fenton)

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